Governments across the world have switched to prepaid cards as a modern alternative to cash when it comes to distributing payments to its citizens who opt not to use bank transfers. However, the UK is only now starting to fully seize the opportunity.
Cash-based government payments are inconvenient and expensive to administer, as well as being less secure and harder to track. Despite the UK being second only to Italy in Europe in its need to replace cash, with an estimated £3bn of transfers each year, it is only now that these types of prepaid schemes are being adopted.
Early efforts to modernise government payments in the UK were met with political resistance rather than practical issues, with controversial views from some about how they might be used to curtail the spending habits of benefits recipients - for example, preventing purchases deemed unnecessary or wasteful, such as buying cigarettes or on other products that are not ‘nutritionally good for you’.
This reputation fall-out from resistant comments made prepaid schemes harder to sell to the public. However, since then many programmes have been established and are thriving without the political strings attached. These have gained acceptance from the public for their ease and convenience as well as helping to streamline and lower the cost of administration for under-pressure local government departments. For example, prepaid card incentives reduce and remove the cost of printing, postage and processing for government offices.
The City of Edinburgh recently migrated more than 950 service user accounts to a prepaid card scheme, which has seen £9.5m loaded on to the cards. The cards are provided to members of the public who receive a Direct Payment to purchase services identified within their care plan, so the types of services purchased vary per person. These broadly cover care providers, individual personal assistants, respite facilities and day centres.
Many people use their card to make faster payments, as well as Direct Debits, shopping online and in stores. Although ATM withdrawals are currently not allowed.
However, the move towards prepaid isn’t solely to bring costs down and increase security. The wider goal of these types of schemes is to increase social inclusion and prevent people from being excluded from the modern digital economy.
People who receive government benefits in cash, who may not have access to a full current account or credit card, can often find the cost of living increased. Research shows those who are financially excluded pay a ‘Poverty Premium’ as they are unable to shop online or benefit from Direct Debit discounts. Studies by Save The Children and The University of Bristol estimate the cost of not having access to bank accounts or card facilities can cost families hundreds of pounds per year, which exacerbates poverty.
Research from The Financial Inclusion Commission estimates that two million people in the UK are financially excluded.
Prepaid cards bring people into the financial fold and can begin to alleviate the Poverty Premium, helping to remove digital exclusion and other barriers to entry of cheaper living costs.
Following successful implementation of prepaid card schemes such as the recent example in Edinburgh, more and more local authorities and housing associations are increasingly switching to similar incentives to fulfil their social care obligations.
It is conceivable that over the next ten years almost all of the UK’s £3bn cash payments could be replaced by prepaid alternatives, with the current implementation of Universal Credit being a big driver in adoption and uptake.
Alastair Graham is spokesperson for the Prepaid International Forum (PIF)